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On the incentives to exacerbate polarization

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  • Pablo Montagnes
  • Richard Van Weelden

Abstract

An organizer seeks to extract rents from competing interests in a polarized environment. We model these interests as three potential bidders, a neutral bidder, and two bidders who are “polarized” in that they prefer the neutral bidder to win rather than the other polarized bidder. The organizer cannot commit to an optimal mechanism, but can decide which bidders to allow to participate. While greater competition is generally thought to benefit the organizer, we identify conditions under which she increases expected revenue by preventing the neutral bidder from participating, thereby increasing the willingness to pay for polarized bidders. Thus, rather than seeking to bring about compromise, organizers have an incentive to exacerbate conflict. Excluding the neutral bidder always makes the auction less efficient, but the incentive to exclude her is greatest precisely when it lowers efficiency the most. We discuss applications in economics and politics (JEL D44, D62, D72).

Suggested Citation

  • Pablo Montagnes & Richard Van Weelden, 2024. "On the incentives to exacerbate polarization," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 40(3), pages 854-890.
    • Handle: RePEc:oup:jleorg:v:40:y:2024:i:3:p:854-890.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewad016
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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